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How Effective were Job-Retention Schemes during the COVID-19 Pandemic? A Microsimulation Approach for European Countries

Author

Listed:
  • W. Raphael Lam
  • Alexandra Solovyeva

Abstract

The COVID-19 pandemic had posed a dramatic impact on labor markets across Europe. Forceful fiscal responses have prevented an otherwise sharper contraction. Many countries introduced or expanded job-retention schemes to preserve jobs and support households. This paper uses a microsimulation approach (EUROMOD) and household data to assess the effectiveness of those schemes in stabilizing household income during the pandemic across European countries. Empirical evidence shows that job-retention schemes were effective in stabilizing income and, along with other measures, absorbed nearly 80 percent of market income shocks—almost doubling the extent of the automatic stabilization of the pre-pandemic tax and benefit systems. The large effects are related to the widespread use and scaling up of those schemes and a deep but short-lived disruption to labor markets during the pandemic. Along with other fiscal support measures, job-retention schemes helped mitigate the rise in the unemployment rate, by about 3 percentage points, and income inequality during the pandemic. Our results show that job-retention schemes were largely targeted, in which households more vulnerable to income losses, such as lower-income families, youth, and low-skilled workers, are able to stabilize their income.

Suggested Citation

  • W. Raphael Lam & Alexandra Solovyeva, 2023. "How Effective were Job-Retention Schemes during the COVID-19 Pandemic? A Microsimulation Approach for European Countries," IMF Working Papers 2023/003, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2023/003
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    Cited by:

    1. Konstantins Benkovskis & Olegs Tkacevs & Karlis Vilerts, 2024. "Understanding How Job Retention Schemes Reshape the Within-Occupation Skill Profile of Employees within Firms," Working Papers 2024/02, Latvijas Banka.
    2. Camilo Gómez & Daniela Rodríguez-Novoa, 2024. "Firm Support Measures, Credit Payment Behavior, and Credit Risk," Borradores de Economia 1277, Banco de la Republica de Colombia.

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